Banks


BANKS….Justin Fox on the “shadow banking system”:

And another thing: If you borrow short and lend long, you’re effectively a bank. It’s becoming ever less clear to me what justification there is for nonbank borrow-short-lend-long-institutions other than regulatory arbitrage.

Brad DeLong responds:

Not just “effectively” a bank. You are a bank. Not until the twentieth century did we have organizations that borrowed short and invested long that did not call themselves “banks.” The emergence of non-bank banks has always been the result of attempts at regulatory arbitrage.

So what’s the answer? What should our 21st century definition of “bank” be for regulatory purposes? Any entity that invests other people’s money in any way? That can’t be right, can it? Or can it?

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